Fraudulent Accounting: Case Analysis Of Parmalat Spa

For the best part of a decade Parmalat SpA, an Italian multinational dairy and food group committed and got away with one of the most sophisticated and largest acts of fraudulent accounting in recent history. They carried out a number of fraudulent practices designed to mislead and create a false image that the company was financially healthy. Some of their most prominent practices are identified below.

1. Forged bank accounts

Management stated there were bank assets that did not, in fact, exist. They did so through creating complex transactions using offshore subsidiaries (specifically subsidiaries registered in the Cayman Islands). ‘magistrates claim that four times a year Parmalat was operating a crude, but effective, system for forging

If they agree that the financial statements are correctly presented they give an unqualified audit opinion.

To do this the auditor should ensure that the company operates an appropriate system of internal control and operates good corporate governance structures. The auditors should independently verify the existence, ownership and valuation of assets and ascertain the existence of liabilities.

The main role in relation to fraud prevention is the operation of appropriate systems of internal controls, with proper segregation of duties and good corporate governance (this reflects the culture and practices of the organisation). The auditor has to assess and report on the adequacy of these systems of internal controls and segregation of duties. This gives confidence to the users of the financial statements of how the organisation operates on a daily basis. Auditors are in a way act as eyes and ears for users of financial statements into an organisation. They offer both an insight into an organisation and are supposed to act as protector of the law ensuring proper accounting standards

It sets out to consolidate Ireland’s current Companies Acts and step up the emphasis on personal responsibility in corporate governance. Such reform is being welcomed as it looks to modernise certain areas of Irish company law that have in recent years been seen to fall behind those of our U.K. neighbours with whom our company law has been closely correlated.

Amongst other things the Bill sets out to radically reform the area of personal responsibility in corporate governance. It sets out increased duties, responsibilities and introduces an increased level of personal liability for directors in relation to good corporate governance with a particular focus on larger companies. The Companies Bill 2012 is the largest in the history of the state and makes multiple reforms to deter the incident of fraud. Below I will outline two of what I feel are the most significant reforms proposed by the bill.

1. Reform to the current landscape of directors